The operation of private and government nurseries in the Philippines is not delivering high quality planting materials of a wide species base for smallholder forestry, tree farming and reforestation programs in the country. A project supported by ACIAR has been implemented in the Philippines to improve the operational effectiveness of the forest nursery sector. Surveys in the form of personal interviews, observations of the nursery set-up and assessment of seedling quality were undertaken in Leyte (reported in this paper) and in Mindanao to provide baseline information for designing possible interventions. The Leyte study revealed that the low operational effectiveness of the forest nursery industry is a result of a combination of social, economic, technical and political factors. The majority of private nurseries are managed by resource-constrained smallholders with little access to high quality seedling production technologies. Seedling production, both in private and government nurseries, is largely quantity-oriented and the pathway of high quality germplasm is not well developed. Currently there is no policy that regulates the quality of planting stock from the forest nursery sector. Government nurseries operate to provide free seedlings but this scheme resulted in crowding out the small-scale private nurseries, negatively affecting the operational effectiveness of the private nursery sector. It appears that improving the operational effectiveness of the forest nursery sector in the Philippines requires policy changes to re-organize the operation of private and government nurseries.